6 smart reasons to get a business loan

Spreading the word you are considering a loan for your business can be found all kinds of opinions. General critics caution stories, everyone you meet will have a story about what might happen if you take a loan to start or expand your business.

It is true that each reason is a good reason to go into debt for your business, it does not mean that there are not good reasons. If your company is ready to make a jump, but not the working capital to do so, here are six reasons why you might reconsider a loan to small businesses.

1. Are you ready to expand your physical location.
Their cabins are full to bursting, and his new assistant had to be installed in the kitchen. Looks like you spent your initial location in the office. Or maybe run a restaurant or a retail store, and has more customers in and out of what can enter your space.

This is great news! It is likely to mean that the company is growing, and is now ready to expand. But just because your business is ready for expansion, does not mean you have money in hand to get there.

In these cases, you might need a long-term loan to finance its big move. If we add an additional location or pick up and move, the cost and the initial change overheads will be important.

Before you commit, take steps to measure changes in potential revenue that could come from the expansion of its space. You could cover their borrowing costs and still make a profit? Use a forecast of revenue and its existing balance sheet to see how the measure might affect their bottom line. And if you talk about a second point of sale, research the area you want to set up shop to make sure it is a good fit for your target market.

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2.’re credit building for the future.
If you plan to apply for financing large-scale business in the coming years, the case can be made to start with a small short-term loan in order to build your business credit.

small businesses may find it difficult to qualify for larger loans if the company and the owners do not have a strong credit history statement. Take out a small loan and making regular payments on time credit will build your business for the future.

This tactic can also help build relationships with a specific lender, which gives you a connection to return to when you are ready for this larger loan. Be careful here, however, do not take on a loan early you can not pay. Even a delay in the payment of its smaller loan could make their qualification for funding in the future even worse than if she never asked the small loan at all.

3. You need a computer for your business.
purchase equipment that can improve your commercial offer is usually a given for funding. certain machinery, computer equipment or other tools to make your product or service make it necessary, and you need a loan to finance the team. Also, if you take the financing of equipment, the equipment itself can often be used as collateral for a loan – like a car loan, so.

Before taking a loan of equipment, make sure it is to separate the real needs of the nice-to-have when it comes to your bottom line. Yes, your employees probably like a margarita machine. But unless you run a Mexican cantina, this particular team may not be the best investment of your business.

4. Do you want to buy more stocks.
The inventory is one of the biggest expenses for any business. As the purchase of equipment, you must follow the request for the replacement of its inventory with abundant and high quality options. This can be difficult sometimes when you need to buy large quantities of stocks before seeing a return on investment.

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Especially if you have a seasonal business, there are times when you might need to buy a lot of stocks without the money to do it. slower seasons preceding the holiday periods or tourist seasons – that requires a loan to buy stocks before making a profit out of it.

To measure if it would be a smart financial move for your business, create a sales forecast based on sales from previous years in the same time. Calculate the cost of debt and compare that number to the total sales projected to determine whether to take a loan of inventory is a smart financial move. Note that the sales figures may vary considerably from year to year, so be careful and consider several years of turnover in its projection.

5. You have found a business opportunity that outweighs the potential debt.
From time to time, an opportunity falls in your lap that is too good to pass up – or so it seems, at least. Maybe you can order in bulk stocks at reduced prices, or you can find a bargain in a retail space in expanded detail. In these cases, determining the ROI of opportunity requires that weighs the cost of borrowing relative to revenue, it will generate for the occasion.

Say for example, you have a business where obtaining a commercial contract for $ 20,000. The problem is that you do not have the equipment to complete the job. The purchase of the necessary equipment that would cost about $ 5,000. If you took a two-year loan on the team, pay a total of $ 1,000 in interest, their profits would still be $ 14,000.

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If the potential return on investment is higher than the debt, go ahead! But be careful with your calculations. More than one employer was found guilty of underestimating the actual costs or overestimate the benefits due to an excess of enthusiasm. When you weigh the pros and cons, it is often useful to estimate the revenue to ensure that you are basing their decisions on actual figures rather than instinct.

6. Your company needs new talent.
When you work in a home or small business, you wear many hats. But there comes a time when it is accounting, fundraising, marketing and customer service can start to use on you – and your business. If your small team is doing too much, which eventually falls through the cracks and endanger their business model.

Some companies choose to invest their money in their talent, believing that this is a way to keep your business competitive and innovative. This can be a big step, if there is a clear link between the hiring decision and the increase in revenues. But if you have an extra set of hands around helps you focus on the big picture, that alone may be worth the cost of the loan.

Whatever the exact reason you are considering a business loan, the point is this: if, when all costs are taken into account, taking the loan is likely to improve your bottom line – go for it. If the connection between the financing and the revenue increase is unclear, take a second look at whether taking a loan is your best option.

You want to be sure of your ability to repay a business loan over time and see your business succeed. Every business decision is to take a risk. Ultimately, only you can decide if the risk is worth it.